Market impacts of presidential elections

A lot of people are surprised and a bit shocked after last the US election results and while I won’t be discussing the actual results of the election and the fall out (plenty of the media, who were wrong about the election will spend time telling you what will happen), it’s important to know about the market impact.

kiwisaverThe expectation of a Trump presidency would be that the market would react negatively and we are starting to see that (though the DOW was actually up for a bit today, but this could change).

So what does this mean?

Well it means that in the states people are selling shares in companies as they react to the news of the new president and, as more people sell shares, the price drops. This price drop reduces the value of your KiwiSaver units, which results in the cash value of your KiwiSaver (and other managed funds) going down as well.

If you prefer to watch a video on this go here.

The three areas I am going to discuss are:

1. Changing your fund
2. Hedging
3. Historical impact.

Changing your fund:

So should you change your fund to Conservative?

In short no. if you have a longer time period (more than a few years), then you should leave your fund as it is, because markets always recover and the benefits of the drop, will be a positive for you.

If you are about to get your money out of KiwiSaver, then scaling down your fund to a more conservative fund, could be a good idea.

If you have a longer time period, then the benefit of this is that while the funds are down in value, you are buying these shares on a discount. So when they do go up, you will have more units and they will be worth more.

So counter intuitively, it’s the time to buy rather than sell.

To use an analogy, if the housing market drops 20%, would you sell your house or look for bargains to buy more?

Shares and managed funds are no different.

Hedging:

The other thing to think about is that most of the managed fund providers will have been hedging against this (at least one of them we spoke to was planning for this). In very basic terms, downside hedging involves buying a contract that states that at any time until it expires you can sell your shares for a certain value.

So for example, you have some shares worth $10 each, and you take out a contract to be able to still sell them for $10 over the next 90 days. If during this time the share price drops to $8, you can choose to trigger this contract and sell them at $10, rather than $8. And then of course you could use this money to buy them again at the new lower price.

Historical View:

Major events happen all the time, and markets drop all the time. Major events like 9/11, WW2, the dot com crash and many other events will result in the market dropping. But it always rebounds.

On the image below you can see the historical trends of the market overset with the momentous events. As you can see, the market recovers.

graphic-for-investments

So whatever the impact of a Trump presidency, the market will recover, like it always does.

Summary:

If you have any questions on any of this, or want some advice for your KiwiSaver, get in touch with us. And if you know someone not getting advice on their KiwiSaver, get them to give us a call.

By Alan Borthwick

There are Ethical Options for KiwiSaver

Leaving aside the overblown hyperbole of the journalists in this article (I don’t think any company advertises itself as a cluster bomb company, but whatever), it’s important to know where you are investing and if you have preferences to not invest in certain areas, to see what you can do about it.

 

It’s not enough to just look at the default funds and see where they invest, but all funds.kiwisaver

 

If investing in alcohol, tobacco, firearms, gambling, uranium mining and fossil fuels is something you want to avoid, there are about 4 options in the market (unless you only invest in cash) for you.  2 of those are run by Grosvenor, a fund we do a lot of work with.

 

These two funds are the first two in NZ to be certified by the RIAA, the Responsible Investment Association Australasia.

 

It’s easy to switch these funds if you want access to them, and you can also get advice ongoing from the team at DUX Financial.

 

We can set up your funds to fit all risk appetites from high growth to conservative and will advise you on this.

 

Alan Borthwick of DUX Financial is an Authorised Financial Adviser (AFA) and Certified Financial Planner (CFPCM) who assists his clients with ongoing advice to achieve their goals.

 

There is no fee to switch to an ethical KiwiSaver with DUX Financial or to get ongoing advice about your asset allocation, buying a house with KiwiSaver etc.

 

To arrange a switch to the DUX Financial advice system and Ethical KiwiSaver investing, call us on 0800 000 987 or email us at admin@duxfinancial.co.nz

 

By Alan Borthwick

Quality Financial Advice Is Important Not KiwiSaver Provider Choice

It’s adviser bashing time at the New Zealand Herald again as they breathlessly announce that some Financial Advisers only deal with a few KiwiSaver companies.  They never say outright it’s bad, but it’s the impression they are trying to give.

Even the Financial Markets Authority (FMA) says that getting advice is their main concern, not the choice of funds.

Leaving aside the fact that 85% of KiwiSaver funds are sold through banks, and they, funnily enough never mention anyone else’s fund, why is it an issue if an adviser only sells one product?  While there are 600 bank Authorised Financial Advisers (AFA)s, I have never heard of one who sold KiwiSaver.  Most of the KiwiSaver funds are sold through the branch tellers, who can sell it to you but not give you personalised advice on it, or offer any advice on your existing funds.

Advisers have to disclose how many products they sell from each category to their clients.  If an adviser says they only deal with company X, then you have the choice of sticking with them or going to an adviser who deals with more companies (even if they end up recommending company X).

An adviser has to tell you the pros and cons of moving to, or away, from a particular company.

I can tell you that no bank staff member has told my clients when they try to move their KiwiSaver that they are going to lose personal access to an AFA, and that they will be signing up for a scheme that is not even the bank itself but one with their label over it, run by someone else.

I have to disclose, but the bank staff don’t.  That’s left out of the article.kiwisaver

The IFA president is correct that there is not much money in KiwiSaver for advisers.  It’s viable for me, because I have taken a loss on so many clients that now I have enough to cover the costs of advising everyone.  But its hard work.

But let’s look closely at why we don’t deal with all 28 plus companies.

  1. Only 10 deal with advisers – even if I could deal with all 28, 18 of them won’t talk to me anyway, and won’t pay me. And as the consumer won’t pay for KiwiSaver advice, that’s the end of that.
  2. They are mostly interchangeable. There is not a lot of difference between providers. They all offer similar funds, have similar fees, have similar returns over time etc. the differences are between specialist funds such, as the ethical funds that only three providers have, and the vast differences between the quality of the online information offerings are about as good as it gets.  The providers don’t give advice directly anyway, so unless you go to their sales team, you need to talk to an adviser to find out the differences anyway.
  3. Some of them are tiny. Some of the funds out there are very small. So even if I could deal with them, I might want some bigger options.
  4. Some of them are hostile to advisers. One fund that specialises in a particular industry spends a good portion of their value proposition slagging off advisers and the need to get advice. They spend a bunch of time on the fact that we can get commission, but leave out the fact that their sales people are clearly paid for their work and probably get bonuses.  Why would I recommend a fund that does not even think we have a place in the industry?
  5. There is no reason to. If I have a value offering to you that gives you the advice you need, the service, communication etc., does not leave you with any risks from leaving your current fund and you are happy with it, but it’s only with one provider, what’s the problem? The key is disclosure and advice, not the number of choices.

The New Zealand Herald is trying to claim that choice of funds is most important, not advice.  Well, I disagree.

There are 28 plus providers out there, I doubt anyone could name over half of them easily and most are much the same.  They don’t advise, they sign you up and hope you forget to leave.

For me, the key thing is advice.  At DUX Financial Services we work with five KiwiSaver providers, though we don’t use them evenly.  We focus on the initial advice, and ongoing advice, which is the most important focus.

The choice of provider is not as relevant as the quality of the advice.

By Alan Borthwick

Changes to KiwiSaver for First Home Buyers

 

The Government has announced some changes to the KiwiSaver Homestart grant (and by extension the Welcome Home Loan) that kick in today.

The Homestart grant is a grant of $1,000 per year you have been in KiwiSaver up to 5 years, that can go towards your home deposit. Both borrowers on a loan can get this and if you are buying a brand new home its doubled.

The changes are:

  1. The Current maximum income for a single borrower is going from $80,000 to $85,000 per year.
  2. The Current maximum income for 2 or more borrowers is going from $120,000 to $130,000 per year.
  3. The maximum house price in Wellington is going from $450,000 to $500,000 and in Auckland from $550,000 to $600,000.
  4. If you are buying a brand new home the maximum house price goes up another $50,000.
  5. The restrictions for Welcome Home loans – which are the same as the Homestart grant restrictions increase the same as steps 1-4. Most people won’t need the Welcome Home Loan, but for those that do, it’s great.

Combined with the change a couple of years ago to allow you to withdraw the tax credits as well, this is really helpful for first home buyers.mtge

For second chance first home buyers (i.e. people who have owned a home before but do not now), there was also a change on 1 July 2016 that removed the maximum income to be allowed to get your KiwiSaver out. So this means that a 2nd chance first home buyer has a better chance of being able to use your KiwiSaver, and for a more expensive property.

It’s not a Panacea to the current crazy market, but it will help first home buyers to be able to buy a home at a higher price. Many of the first home buyers we speak to cannot find a home at the current $450K, unless they go further out, or buy very small, so now they have a chance to get a slightly bigger place, and with the change to building, it’s slightly more likely you can actually build a brand new home to get the doubled grant.

As always if you are looking for advice on this, don’t hesitate to let us know and forward this to your friends who are first home buyers.

By Alan Borthwick

Changes to KiwiSaver Homebuyer’s withdrawal

mtgeThe government has announced some changes to KiwiSaver withdrawals for 2nd chance first home buyers that will come into place on the 1st of July 2016.

 

I have read a couple of articles and there is some confusion about what it all means, so I thought I would clarify this for everyone.

 

Current situation:

There are two aspects to KiwiSaver assistance for buying a home.

 

First, the KiwiSaver withdrawal, and secondly the Home Start Grant.

 

If you are a first home buyer and have never owned a home before, you get your KiwiSaver provider to confirm you can withdraw your funds, and you apply to Housing New Zealand Corporation for the Home Start Grant.

 

If you are a 2nd chance first home buyer, you have to first apply to Housing NZ for permission to withdraw your KiwiSaver, on the same form you use to apply for the Home Start Grant. Once housing NZ approves you as a 2nd chance buyer, you go back to your KiwiSaver provider with that approval to get your KiwiSaver withdrawal confirmation.

 

So far, all makes sense right?

 

The current rules for both the withdrawal and Home Start Grant are:

 

First home buyer

Withdrawal Home start
No income requirements $80 000 max for 1 borrower, $120 000 for 2 or more
No maximum assets 20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house).

 

2nd Chance First Home Buyer

Withdrawal Home start
$80 000 max for 1 borrower, $120 000 for 2 or more $80 000 max for 1 borrower, $120 000 for 2 or more
20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house). 20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house).

 

So what’s changing?

The bit that is changing is the maximum income for the 2nd chance first home withdrawal is being removed, so it does not matter what you earn, you can get your money out.

 

It’s not changing for the Home Start Grant, but just to get your own money out.  And there are no changes for people who have never owned a home before.

 

What difference will this make?

Well if you have owned a home before, but earn over the cap, you can now get your money out of KiwiSaver to fund your first home.

 

This could well speed up your ability to get into a home, and I can already think of a lot of clients this will help.

 

It won’t help if you already have over the asset cap, so it’s for genuine cases of people in a first home buyer’s situation, but it’s a good boost for those who used to own a home, came out with little to nothing, but have a bunch of money still in KiwiSaver.

 

If you have used KiwiSaver before, you cannot withdraw it twice, and you cannot take out any Australian super or UK pensions that have been transferred in, but other than that, you can withdraw all but the first $1,000 of your fund.

 

The Housing New Zealand Corporation site has an official notice of the change, but if you have any questions on this, let DUX know, and we can provide advice and make it easy for you to get into your (2nd chance) first home.

By Alan Borthwick

DIY Retirement Warning

kiwisaverI am not convinced that the answer to people not planning for retirement, is more Do It Yourself (DIY) focus. Sure, it’s better than nothing, to use the calculators etc., but the problem with these is the placebo like effect of having run the calculator, and then your brain basically deciding you are done, and then you go back to whatever else you are doing, and spending.

Doing this with an Adviser (an Authorised Financial Adviser (AFA) who can advise on long term retirement planning), is better because the calculators are not the point, the calculators are just the overview.

The purpose is to identify the habits to change and where to put money, what to change etc. so that you get the better benefit of compounding interest, and do a bit better with your money each year.

This bit annoys me though:

Retirement planning is not a precise science, and people should ignore the big, scary numbers the money men and women sometimes claim you need for a comfortable retirement.

It is not a precise science, but you should not ignore the big scary numbers, but understand that a good planner will show it in context of what you need to do each year and each week. But, if you ignore the big number, and think “she’ll be right” then you are doomed to failure unless you have a happy accident.

The article mentions wildcards like the Auckland rates increases and Christchurch changes to insurance (though premiums did not double, but media is nothing but there for hyperbole), well that’s what a planner helps you with, a DIY calculator cannot.

The general process for retirement planning is:

1. Determine needed income needed in retirement
2. Determine savings needed to get there
3. Allow for inflation and other expected unexpected expenses
4. Plan for clearing the mortgage
5. Alter the budget and spending habits as needed
6. Sort the KiwiSaver and other products as needed
7. Set up Review plan

It’s easy, but it’s not simple. A good plan with solid advice will make the difference between retirement, and a good retirement.

By Alan Borthwick

Are You Moving KiwiSaver For Bad Reasons?

kiwisaverHarsh that the AMP KiwiSaver gets singled out here for who has lost KiwiSaver business, when in reality the banks are creaming most of the KiwiSaver transfers from everyone, as they ‘touch’ clients more often than the other providers.

It has nothing to do with quality of KiwiSaver advice as no providers give any, yet AMP can actually refer you to a non-aligned adviser who can give you some; where at best the banks might put you on to one of their in-house Authorised Advisers, but good luck finding one.  ANZ has 70 Authorised Financial Advisers (AFA) for 660,000 members, Kiwi Bank has 1 Adviser for every 50 branches etc.  It’s pretty dire.

People are moving KiwiSaver for usually bad reasons, it will be ‘convenience’ such as seeing your balance on internet banking, which for the life of me I have never seen the appeal unless you are withdrawing your KiwiSaver next week, as you cannot touch it for years.

AMP’s KiwiSaver online access is no better or worse than others, although the adviser end of the system is clunky (though not as clunky as other providers), but for the consumer it’s much of a muchness.

The other reasons to transfer are past returns, which is like picking next year’s Super 15 winner based entirely on this year’s winner.  It’s possible that the past winner will win again, but it’s equally as likely they won’t.

A reminder – past performance has nothing to do with future performance.  In investing it’s all about, “What have you done for me lately?”

Very few are basing their investment plans on the future and access to advice.

Most people we speak to have never had KiwiSaver advice from their provider and are sitting on thousands of dollars, hoping it’s doing the right thing.

There are only 1,800 AFAs in the country and not all do KiwiSaver, so it’s not easy to find an adviser.  But it’s worth it.

By Alan Borthwick

Trans-Tasman Retirement Savings Transfers – Advice Is Key

kiwisaverThe rules around Trans-Tasman transfers are a bit odd, and a giant pain in the neck, but worth it.

It took years for the two governments of New Zealand and Australia to get to a place where we could get Trans-Tasman portability, and while the KiwiSaver providers leaped at it, the Australian ones, not so much.

Bringing money to New Zealand requires a pile of paperwork, a visit to the Australian Embassy (if you are in Wellington) or a lawyer who is recognised as being able to practice in Australia otherwise, and then hoping that some minor infraction does not have them send it all back.

Most people I know have had their stuff reposted back to New Zealand at least once.

Going the other way, most of the Australian providers are not interested in helping.  It’s starting to change, but essentially they don’t want the hassle.

I don’t blame them, it’s a bit of a pain as the money that’s transferred has to stick to the original countries rules, so money from Australia cannot be used to buy a home in New Zealand, and money going to Australia has to stay in the fund till you’re aged 65, not as part of the early withdrawal they can do.

So the answer?  Get advice as usual, read the documents thoroughly and be patient.

Once the money is here, you don’t have to worry about what Australia does with their rules.

It’s not about long term returns etc., just about having your money in a country you are in and can keep an eye on.

By Alan Borthwick

KiwiSaver Withdrawals and Tax Credits – Get Advice

kiwisaverTime to learn some facts about KiwiSaver. There is too much misinformation out there.

There are not many situations where by you can withdraw your KiwiSaver:

  1. You turn the age of retirement (currently 65)
  2. You die (goes to your estate)
  3. You permanently emigrate (after a year of leaving)
  4. You suffer a serious financial hardship
  5. You are buying your first home

That’s it, and the rules are pretty strict around each area of early withdrawal.

The tax credits (stupid name, nothing to do with tax), are paid out each year on a 1:0.5 ratio up to $1042.86. What this means is that for every dollar you put into KiwiSaver between 1 July and 30 June each year, the government matches you 0.50c up to a max credit of $521.43.

Everyone from 18 years old and up (to age 65) is due it, and all you have to do is contribute the money.

Most people pay this via PAYE, from their wages, but if you are self-employed (and not on PAYE) or not employed, you need to contribute directly to your KiwiSaver.

In theory, you are only due this money if you are a tax resident of New Zealand, but they seem to pay it to everyone regardless, as I guess they cannot tell who is not here.

So, everyone seems to get the funds.  The government does do a check when you go to buy a home to make sure you were not overseas, but beyond that, I am not sure how they double check.

If you need to query any other facts about KiwiSaver or have questions about your own, best to talk to an Authorised Financial Adviser (AFA).  There are 1,800 of us in New Zealand and I (Alan Borthwick) is one of them.

By Alan Borthwick

Property Investors Buy More Than First Home Buyers? Crazy Idea!

Mortgage_first-home-150x150This is another one of those, it’s happening in Auckland therefore it’s the entire country articles.

 

There could be many reasons why in some areas, investors are buying more property than first home buyers.  In fact, the only way to make this data look useful at all, is to have something to compare it to, i.e., what where the numbers in 2008 when rates were 11.95% floating.

 

If we have a rolling comparison, we would probably see a confluence of when rates are low, and investors buying more.  The more tax rules change to disadvantage property investment, the lower the number.

 

So, why might investors buy more than first home buyers?  They probably have more money?  Crazy idea, that someone further in their plan has more money so can buy more property than someone saving their first house deposit.

 

Off the top of my head I have done 1 loan this year for an investment property, I have done quite a few home upgrade loans (i.e. sell the current home and buy a new one), a few where they buy a new home and keep the current as a rental and I have done 80% of my loans in the first home buyer space.

 

Some clients are finding it hard to find the house they want, but oddly, they are in the higher price range ($400K plus), not the typical first home buyer range ($200-350K).

 

There is likely to be a confluence of investors and home buyers looking at similar properties, but a good home is not necessarily a good investment and vice versa.

 

I suspect many of the investors are buying bad investments, which means they will be back on the market in a couple of years with the owner taking a loss.  Why?  Well many New Zealanders think that property investment is easy and you just buy a property and wait.  But it’s not that easy, yield, return, tenant choice etc. are all things to take into account to make sure it’s a good purchase and even then the payoff may be 10-15 years later.

 

So, it’s bad investors just buying property willy nilly, good investors will let properties go when the numbers don’t work.  Home buyers may have to pay $10K more than they would have, but if this ruins the investors numbers, then you get the home.  Good investors buy on numbers, bad investors buy on ego and emotion and will probably lose out (unless they get lucky).

 

Right now my rentals are not amazing, but when I bought them 8 years ago, I had a 30 year plan, so as long as I stick to that and don’t react to the media doom and gloom merchants, eventually they will be good for me and provide a good return.  But, that’s get rich slow, not the media obsessed get rich quick approach.

 

For first home buyers?  Keep saving, ignore the media, keep saving, and buy what you can afford to get into the market, keep saving and get advice!

 

There are homes out there, and they are quite affordable.  Just ignore the media.

By Alan Borthwick